Trade Reference Currency

[ENDFED]

What is the Mises Institute take on a Trade Reference Currency as explained here by Bernard Lietaer?:
www.humanitad.org/team/25/

Is there any flaws in this economic system that you can think of?.

Thanks in advance for you guys input on this.

[thelion]

1. “Inflation is always defined as the changes in value of a basket of goods and services.”

No. Inflation is increase in quantity of money or money substitutes (e.g., credit), which lowers value of any single unit of money.

2. This was already proposed by Irving Fischer in early 1900’s. It failed to win people over because of following valid criticism:

It would still result in inflation, because of changes in quantities of things selected as components of baskets of goods. Further, composition of basket of goods is arbitrary, and susceptible to identical manipulation such as that which Burea of Statstics uses to claim there is no inflation right now, which is laughable claim with doubling prices of food and many other fast turn over foods or import goods or services. They merely exclude those things whose quantitiy changes or prices rise of from current basket with hand-waving reasons, and thus claim no inflation if this is politically asked of them.

Wheat or oil are terrible standards, because their quantity fluctuates arbitrarily based around decisions of cartels, and naturally on top of that, and would cause inflation followed by deflation, both bad.

3. Only single commodity money, where commodity changes quantity very predictably can serve as international money. Its quantity used as money must be basically fixed. Credit would be fine money, so long as its quantity was fixed. But because its quantity is so easy to increase, legally or not, it is bad basis of money.

[The_Freeman]

The IMF has been trying to foist a world currency onto us for a while now. Yeah, it’s all part of the plan…

If you can glance over this abomination of a policy document without immediately passing out from boredom, you’ll eventually see the following…

http://www.imf.org/external/np/pp/eng/2010/041310.pdf

48. From SDR to bancor. A limitation of the SDR as discussed previously is that it is not a currency. Both the SDR and SDR-denominated instruments need to be convertedeventually to a national currency for most payments or interventions in foreign exchangemarkets, which adds to cumbersome use in transactions. And though an SDR-based systemwould move away from a dominant national currency, the SDR’s value remains heavilylinked to the conditions and performance of the major component countries. A more ambitious reform option would be to build on the previous ideas and develop, over time, aglobal currency. Called, for example, bancor in honor of Keynes, such a currency could beused as a medium of exchange—an “outside money” in contrast to the SDR which remainsan “inside money”.

IMF special drawing rights are based on a ‘basket of currencies’, so they don’t work as money themselves - you first have to convert them into their national currencies. To avoid this problem, a global central bank would have to base their “bancor” (God, that sounds evil) on a basket of commodities instead.

50. Caveats and pre-conditions. Absent significant monetary instability or an injunction
    for use of bancor for the making of an important set of payments (e.g. payment of taxes),
    surmounting the barriers to wide acceptance would be a key and perhaps prohibitive
    challenge.

They need global economic chaos to destroy the national fiat currencies, and then they’d need governments to make their ‘bancor’ or ‘Terra’, or whatever, into legal tender.

Since a system with a few currencies competing alongside one another has built in safety valves (in terms of checks on inflation, for instance; see Rogoff, 2001), it would be essential to construct governance arrangements that ensure accountability of the bancor-issuing institution while assuring its independence. These arrangements would also need to be sufficiently flexible and robust to accommodate differences among adopting members.

English translation: You’d need a global reserve banking system that operates like the Fed, run by precisely the same financial institutions that run the Fed.

51. Why bancor? A global currency, bancor, issued by a global central bank (see
    Supplement 1, section V) would be designed as a stable store of value that is not tied
    exclusively to the conditions of any particular economy. As trade and finance continue to
    grow rapidly and global integration increases, the importance of this broader perspective is
    expected to continue growing.

Now let’s have a look at Prof. Dr. Club of Rome’s variation on the theme. Unlike the IMF external documents, it’s couched in less threatening language, but it’s the same thing, don’t you worry…

In contrast, the creation of a Trade Reference Currency (TRC) - an agreement among a group of business partners to accept some currency arrangement other than the conventional currency - would be more cost-effective.

It almost sounds like he could be talking about any group of business partners, adopting some sort of free competing currency to the current state fiat. Very clever use of language. It turns out he’s talking about a very particular and privileged group of “business partners”, with significant power over governments around the world, to which neither you nor I belong…

The TRC would be legally structured as standardized barter.

That sentence confirms that you’re dealing with none other than the IMF’s neo-Keynesian ‘bancor’. It’s a global monopoly on money that he’s asking for, run by a global reserve bank.

Terras would be issued by a Terra Alliance as electronic inventory receipts for commodities sold to it by producers.

“Terra Alliance” = global reserve bank.

The Terra is defined as a standard basket of the most important commodities and services in the global market for which futures markets can be established (e.g. oil, wheat, copper, etc; as well as some standardizable services such as the International Shipping Charter Rates.) It would, therefore, be conceptually similar to a fully backed gold standard, but rather than the backing of one single commodity there would be a dozen of the main commodities being traded today internationally, including gold.

The international reserve bank would have to decide what commodities to use, exactly, and in what proportions. It would be international price fixing at a grand scale, with immense centralised control over the economy.

Lender of last resort. The global central bank could serve as a lender of last resort,
providing needed systemic liquidity in the event of adverse shocks and more
automatically than at present. Such liquidity was provided in the most recent crisis
mainly by the U.S. Federal Reserve, which however may not always provide such
liquidity.

How the hell are they going to do that without printing money?

This “commodity standard” just means that no one other than the ‘Terra Alliance’ can decide how much the money is worth, right? Great…

The Terra would be designed as an inflation-resistant currency by the very definition of its composition. Inflation is always defined as the changes in value of a basket of goods and services. Therefore, by selecting the appropriate ingredients in the basket (including, if desirable, an index capturing residual global inflation not picked up directly by the basket of physical commodities itself), the Terra could explicitly be designed as inflation-resistant.

It’s up to the whim of the “Terra Alliance”. Anyone else picture Captain Planet every time they read that?

The Terra Alliance would be an organization structure open to all newcomers meeting certain pre-established criteria (similar in this respect to the Visa credit card system).

Hmm, haha… For some reason, I imagined a black guy being kicked out of a country club when I read this. When he complains to the guy bouncing him, the reply is, “Now sir, our club is open to all newcomers who meet certain pre-established criteria. One of which is that you have to be white.”

Obviously they just set it up such that only the right institutions will qualify. It’s not hard, considering that it’s all the biggest international banks.

The Terra could evolve into an accountancy unit, used for international planning, contractual and payment purposes. Terras would take the form of an electronic inventory receipt, and not be issued as notes or coins.

A 100% digital currency is a brilliant tool for totalitarian government control. Are we also going to get barcode tattoos on our hands that will store our digital bank account information?

One key feature, which differentiates it from previous commodity basket currency proposals, is that the cost of storage of the physical commodities would be applied to the bearer of the Terra. This cost for holding the currency is estimated at 3.5-4% per annum. This makes the Terra a demurrage-charged currency, the opposite of a conventional positive interest rate currency. This insures its use mainly as a trading, planning and contractual device. It is intended by its very design to remain in circulation. Unlike conventional money, it is not designed to fulfill the function of store of value. Consequently, it would strongly activate commercial exchanges and investments wherever it circulates.

Ok…

Permanent negative interest rates, no ability to save wealth, everyone is a debt-slave to this IMF global bank… We just work for them forever so that they’ll keep crediting our imaginary computer accounts with ‘bancors’.

Anyone have a problem with that?

The reason is that the Terra would automatically tend to counteract the prevalent business cycle, thereby improving the overall stability and predictability of the world’s economic system. This is so because corporations have by definition an excess of raw materials when the business cycle is weakening. They would therefore tend at this point of the business cycle to sell more commodities for storage to the Terra Alliance, which would pay for them with Terras. These corporations, so as to avoid the demurrage charges, would tend to spend the Terras as soon as possible to pay their suppliers. These suppliers in turn would have a similar incentive to pass on the Terras as medium of payment. The spread of this increased incentive to trade with this currency would therefore automatically activate the economy at this point in the cycle.

Wow, Keynes must be having a wet dream in hell right now.

How, exactly, is a currency which literally burns a hole in your pocket supposed to reduce malinvestment? This is neo-Keynesian stimulus on crack.

A discounted cash flow of conventional national currencies with positive interest rates emphasizes systematically the immediate future at the expense of the longer-term.

How stupid does he think we are?! How are people thinking about the long-term when their incentives are to spend the money before they even receive it?

What is at stake is more than economics. Today, the bulk of the decisions that will influence the future of humanity are made by the major corporations. And as long as those decisions are made mainly on short-term criteria, the chances of us getting to a sustainable future have unfortunately to be considered low. The Terra mechanism would contribute to reorienting these decisions towards a longer term perspective, which may turn out to be vital for our entire biosphere.

You know when these elites start talking about the plants and the insects, that they really have it in for us humans. Don’t ask me how they manage to sneak it into monetary policy documents, but I guess it just goes to show… These plans will entail much less human development.

This is an elite policy document for establishing a global currency and a global reserve bank - a global government.